Auto cos in top gear as Jan sales rise

AUTO makers can boast of a robust start to 2011 amid growing concerns about slowdown in demand due to rising interest rates and higher fuel costs.

The country’s largest car maker Maruti Suzuki said its sales in January rose 24% to 1,00,422 units from a year earlier. Sales of Mahindra & Mahindra, top utility vehicle maker, grew by 15% to 17,208 units. Tata Motors recorded a 15% growth in January sales to 30,212 units. The Nano reported a 68% rise in sales at 6,703 units after a successive decline in sales from July 2010 before recovering to post robust sales in December. Hero Honda, which saw a split between partners Hero and Honda, posted a 20% rise in sales.

“Our strong sales for January have provided an excellent start to the new year. This is the ninth consecutive month of four lakh-plus sales. Going forward, we aim to build on this strong trend and further consolidate our position as the market leader,” said Anil Dua, senior vice-president (marketing & sales), Hero Honda.

However, combined sales growth of Maruti, Hyundai and Tata Motors — which comprise more than 75% ofpassenger vehicle sales — is now around 15% in January against 30% reported during the past few months in 2010, signalling that growth is slowing down. Auto sales in the US too lost momentum in January following the withdrawal of sales incentives from major auto companies.

Analysts, however, expect car companies to post good sales figures during the next quarter. “The outlook looks positive as car companies will continue to post good sales numbers for the next quarter,” said Deepak Jain, auto analyst at Sharekhan. Automobile shares, mainly Tata Motors and Maruti Suzuki, led Sensex’s decline due to concerns on rising interest rates. Lenders are expected to raise interest rates soon.
The BSE’s auto index fell 251 points, or 2.8%, on Tuesday. BSE’s 30-share Sensex dropped 306 points, or 1.7%, to end at 18,022, its lowest close since August 31.

Analysts said foreign institutional investors (FIIs), which sold Indian shares worth 1,037 crore on Tuesday, after remaining net sellers worth 6,330 crore ($1.2 billion) in January, could have sold in select auto shares.

Cars on loans to cost more

Buying cars will become more expensive as lenders are raising rates after the latest round of interest rate tightening by RBI. On Tuesday, Kotak Mahindra Prime raised rates on auto loans by 50 bps. Loan interest rate will vary from 9.5% to 13% after the hike. Interest rates on car loans, however, are still lower than the pre-2006 level of 15-18%. Other large automobile financiers, such as HDFC and SBI, are expected to follow suit. ET had reported on January 27 that 50 bps hike was in the offing. “The demand for cars continues to be robust and a rate hike will not impact car buying or sales,” said KVS Manian, group head, consumer banking, Kotak Mahindra.